EFFECTS OF FIRM CHARACTERISTICS ON THE PERFORMANCE OF LISTED INSURANCE COMPANIES IN NIGERIA
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EFFECTS OF FIRM CHARACTERISTICS ON THE PERFORMANCE OF LISTED INSURANCE COMPANIES IN NIGERIA
Chapter One: Introduction 1.1 Background to the Study
The insurance business contributes significantly to society by stimulating the economy as a whole. This is due to the sector’s role in an economy’s immune and repair systems, and its good operation can provide energy for other industries and economic development (Abate, 2012).
Indeed, a well-developed and evolving insurance industry is vital to economic development because it offers long-term money for long-term investment while also strengthening the country’s risk-taking capacity.
Insurance firms become increasingly important to businesses and individuals because they reimburse business losses, so protecting economic activity in society from collapse. Insurers provide economic and social advantages to society by preventing losses, reducing anxiety and fear, increasing employment, and accumulating premiums for long-term investment.
Thus, like any other industry, insurance companies are required to continually improving their performance in order to maintain their place in society.
The performance of every commercial firm not only increases its market worth, but it also contributes to the growth of the entire sector and the overall success of the economy (Ahmed, Naveed, & Usman).
In this sense, solid financial management should be compatible with the desire to develop and enhance profitability in order to satisfy the goals of individual business owners.
The basic goal of any company is to increase its profits and the wealth of its stakeholders (Gitman, 2007). However, due to internal and external constraints, most businesses are unable to accomplish their objectives.
In other terms, performance is defined as an organization’s capacity to acquire and manage resources in a variety of ways in order to build competitive advantages (Iswatia & Anshoria, 2007).
Internal and external factors can both have an impact on insurance businesses’ performance. Internal factors are management-controllable elements that account for inter-firm profitability variances. External variables, on the other hand, are uncontrolled circumstances that influence a company’s decisions but over which management has no control.
However, macroeconomic or market-specific factors such as money supply growth, interest rates, inflation, and GDP are outside management’s control. Firm attributes play a significant role in determining insurance profitability.
These qualities include business size, underwriting risk, leverage, age, the growth rate of written insurance premiums, as well as the institution and political climate, all of which play important roles in organisational behaviour.
Internal elements related to an insurer’s distinctive characteristics are classified as financial or non-financial variables. Financial characteristics are factors that can be derived from insurance firms’ financial statements and profits and losses.
These include business size, premium growth, loss ratio or risk underwriting, liquidity, tangibility, and leverage, among others. Non-financial features are variables that cannot be derived from an insurance company’s financial statement or profit and loss statement.
They include the age of the company, management competencies, and scope of business. Although management competencies lead to high financial performance, explicitly assessing management abilities is difficult, if not impossible, because such competencies are expected to be represented in insurance firms’ operational success.
As a result, this study used five financial variables (firm size, premium growth, loss ratio, liquidity, and leverage) and one non-financial variable (firm age) as proxies for firm-specific characteristics to assess the financial performance of Nigerian listed insurance firms.
This study thus embarks on an empirical examination to find out those firm-specific variables that affect the financial performance of listed insurance firms in Nigeria.
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